FEATURE STORY: INSIDE TENCENT: CHINA’S GAMING LEVIATHAN read more

1 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 CONTENT

Introduction 1 How China’s Censors Affect read more 6 New Game Releases read more Overview of China’s Market 2 read more China’s Ad-Supported 7 Game Market read more The Rules for Chinese 3 Publishing Deals read more How to Successfully Advertise 8 in China A Look Inside Tencent, China’s read more 4 Giant Success read more 9 Chartboost in China read more Entering China’s Mobile 5 eSports Arena read more

Tencent’s Arena of Valor

2 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 1 INTRODUCTION he Chinese dragon is fully ascendant, after years of fast-paced growth. Chinese mobile gamers now account for 25 percent of world- T wide in-app purchase and in-app advertising revenue, according to App Annie. There are more Chinese smartphone users than there are in the European Union: about 775 million, by researcher New- zoo’s latest estimates.

But China isn’t an easy market — even for local devel- opers. In March 2018, the government began a 9 month freeze on new mobile games approvals. In August 2018, the government further punished its largest game com- pany, Tencent, by blocking sales of Monster Hunter: World only eight days after the game’s release. The Mid- dle Kingdom is marked by fierce competition, and even fiercer regulators.

3 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 Despite the challenges, nobody wants to be left out. Advertising in China is similar, in some respects, to can Western developers, publishers and adver- Luckily, as with so many things in China, regulations the game market: a partner or agency is almost a tisers enter this enormous market? This report can’t completely halt business. Just as there are necessity. The government also regulates ads. In includes exclusive interviews with analysts at ways around the Great Firewall, there are still ways mobile advertising, the market is still in its early stag- Niko Partners, Newzoo and PwC, as well as Chi- to thrive in the Chinese mobile market. es: most inventory is confined to a few apps, and na market consultants, publishers and advertis- within those apps, engagement data can be lacking. ers, on how to tame — or at least survive — the For foreign developers seeking a way in, partners Brands may feel lost about who to target, or how to Chinese dragon. abound. The largest publishers, Tencent and Ne- control advertising budgets that sometimes seem tease, are always on the hunt for games that can to disappear into unfamiliar networks and analytics excite audiences of millions. Smaller niches such as tools. But just as in publishing an app or game, get- strategy or anime-based games have their own sets ting advertising right can result in huge rewards. of publishers. Even mobile eSports, which remain a niche market elsewhere, are full blown in China. Chartboost’s first China report, 2016’s China Rising, There are more than 10,000 eSports teams for a sin- tracked the rapid growth of China. In this edition, we gle mobile hit, Arena of Valor. look beyond growth to strategy: where, and how,

4 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 2 OVERVIEW OF CHINA’S MARKET obile app developers already know that Chi- na is the world’s most fragmented market. Multiple app stores compete for users. Pub- M lishers abound, helped along by the fact for- eign companies are required to work with a local partner. The country’s landscape has looked like the Wild West of mobile gaming for years.

Apple, which has a single store, claims only a quarter of Chinese smartphone users. Meanwhile, Android’s nearly 600 million users are split into multiple stores — over 400, according to an oft-repeated statistic.

But the huge diversity of distribution is only the tip of the iceberg: popular to talk about, but not as relevant as it seems. “At a high level, fragmentation has historically been a positioning point for Chinese companies. They hype up fragmentation because it justifies the need to work with them,” says Josh Burns, the founder of con- sulting firm DigitalDevConnect.

In this section, we’ll take a look at how the Chinese mar- ket has consolidated as it matured— and why it’s more necessary than ever to find a local partner.

5 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 ANDROID: FEWER MAJOR PROBLEMS Many small Android stores continue to cling to life — but this isn’t a fact to get hung up on. Only 10 important stores remain, and even among these, a publisher may choose just a handful. In general, these stores fit in two categories: large publishers, and hardware manufacturers.

The two largest stores, Tencent’s MyApp and Qi- with women, like dating sims, might find a wel- hoo’s 360Mobile Assistant, take a third of the mar- come reception in the Huawei store. ket by themselves. Both companies are experts in publishing, with their own apps ranging from However, Western companies are unlikely to get games and social to security, and offer access to placement on any store without help. “In these a majority of the market. Of the remaining stores, stores it’s based on track record and relation- most are owned by hardware manufacturers, who ships, not because an app is innovative and inter- pre-install their own stores on their phones. esting,” says Burns. ON THE TOP 5 ANDROID STORES, AN APP By releasing on just the top 5 Android stores, an DEVELOPER CAN REACH OVER HALF OF app developer can reach over half of the address- THE ADDRESSABLE MARKET. able market. As a result, the most pressing issue for foreign developers is ensuring their app re- In parallel with the reduced number of important ceives sufficient promotion on a handful of stores platforms, there are also fewer potential partners to — or even just a single store. evaluate — although enough remain to serve de- velopers of all types. “A lot of the smaller publishers Each store tends to have its own strategy and are merging with larger ones or being closed down. policy. For instance, since Huawei is looking to There is still a healthy middle ground of publishers,” increase their female user base, games popular says Daniel Ahmad of Niko Partners.

6 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 iOS, THE “LOOPHOLE” MARKET

While the platforms mentioned above represent lot of effort you can put into finding a partner and the majority of the Chinese market, developers even if they execute they may not be that profit- still have access to an alternative that bypasses able,” says Burns. But be warned: if you later de- the need for government approvals and partners. cide to expand to Android, the initial iOS release This “loophole” is iOS, where releasing games is may become a point of contention. “Local pub- the same as in any other country. lishers don’t like publishing games where they only retain rights to the Android version, because Only a quarter of Chinese users are on iOS. How- it becomes more complicated revenue-split and ever, these users are on the lookout for new marketing-wise,” said Jeff Lyndon Ko, founder of games. “There’s still huge demand from gamers. iDreamSky, during a talk with Chartboost. Not just from new games being released, but leg- acy titles. Four to five games coming out recently For now, the iOS “loophole” remains. But the spe- in the iOS store have jumped right into the top of cial status may not last forever. Ahmad suggests the charts,” says Daniel Ahmad, an analyst at Niko that the government may be in the process of for- Partners. mulating new rules more tailored to the mobile market. If that’s true, including iOS in the regula- The easier standard for success on iOS leads tory regime may be part of the plan — finally, if some developers to stop there. “These days I perhaps regrettably, creating a single landscape push people to explore focusing on iOS and what for foreign developers to enter. they can do on their own. The reality is there’s a

7 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 3 THE RULES FOR CHINESE PUBLISHING DEALS

inding a partner or publisher in Chi- Tencent, the largest publisher, has powerful tools na has always been a good idea. Be- for promotion. WeChat, its social app, is used by fore Android games required gov- 80 percent of smartphone owners in the country F ernment approval, before the market — and Tencent isn’t shy about promoting prod- was intensely competitive, China still ucts, including games, to those users. But there required local relationships and knowledge for are many other choices: game developers, spe- games to thrive. cialist publishers, platform holders, and even seemingly unrelated companies in industries like Now, having a publisher is nearly mandatory. Ap- real estate or mining are all on the hunt for great proval covers a long list of potential details, down content. And as competition rises within China, to the wording of buttons and icons in the game. many of these companies are also looking for And once your game is approved, it won’t go any- games to publish outside of the country. where without business deals for promotion.

8 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 and decide to go with that guy. Commonly, EVERYTHING MUST BE IN SIMPLIFIED CHI- they will not get the 50 million downloads, NESE. IN SOME GAMES THEY’LL HAVE XP or they will get 50 million bad quality down- FOR EXPERIENCE POINTS, BUT CHINESE loads. The key is that you need a partner to REGULATORS SAY, IT MUST BE IN CHINESE. help you operate that 50 million,” founder “The government will eventually help to re- and president of iDreamSky Jeffrey Lyndon sume the game industry. However, publish- Ko told Chartboost in an interview. ers won’t make game acquisition deals as easily as in the past,” says Mantin Lu, gener- The nuances of Chinese users’ tastes can al manager and vice president of product at also be hard to distill. Ko advises developers Seasun, a Chinese publisher. “My advice to to look for a partner that can get hands-on Western developers who want to approach with their game. “You have time delays, and publishing with a Chinese company is to not a lot of the updates that Chinese user needs only talk about publishing rights in China, but don’t apply to your Western needs. Find a also include districts like Southeast Asia, Ja- partner that can handle that development pan and Korea.” for you.”

Tencent’s League of Legends Be Ready To Weather Changing Conditions

First, Evaluate Your Own Chances Additionally, publishing deals in China often Due to the freeze in government approvals come with a revenue share much lower than and the fast-paced competitive landscape Publishing deals in China can be arduous those seen in Western markets. For some in China, many publishers in the country are for both the publisher and the developer. deals, less than 20 percent of revenue goes constantly tweaking their strategy. As a re- Foreign games require significant chang- to the developer. Developers must consid- sult, they can be expected to occasionally es and updates just to get most titles past er whether the expense in time and effort is change their mind about what they want to censors, before you even work on updates worth the potential payoff. publish. Try to catch them at the right time, for users. “You’ll find that even really small or follow up on a regular basis to see if any- things you’d think are insignificant are part Find A Partner Who Can Promise Quality thing has changed. of the process for approvals. For example, everything must be in simplified Chinese. In The massive number of potential players in Lastly, Bargain For More Than Just China some games they’ll have XP for experience China can be distracting. You may end up points, but Chinese regulators say, it must be with millions of poorly suited players — or As Chinese publishers look for ways to in Chinese. Chinese nationalism and culture your game may not be able to keep up with grow into the international market, they’re comes through lots of small things,” says their appetites. “A lot of Western devs come becoming more selective about what they Daniel Ahmad, an analyst at Niko Partners. to China and ask, how many downloads can choose to publish at home — and more in- you guarantee? Then they would say, the terested in deals abroad. other guys guarantee 50 million downloads,

9 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 4 INSIDE TENCENT, CHINA’S GAMING LEVIATHAN wenty years ago, Ma Huateng found- Most Western developers are familiar with these ed Tencent with a single product: a details, as well as the fact that Tencent is the free instant messenger, made for the world’s largest game company, generating al- T PC. Despite gaining a million users, most $4 billion in profit each quarter from mobile the service remained unprofitable un- games. Yet much of Tencent’s special genius for til three years later, when it was adapted for mo- gaming in China has gone untold in the West. In bile phone. this section, we look into what were Tencent’s best moves in recent years. By the mid 2000s, Tencent made games its cash cow, licensing CrossFire, a game that one West- ern critic called “a cheap, aging Counter-Strike clone”. Aesthetics aside, Crossfire made a bil- lion dollars a year. In 2011 Tencent acquired Riot Games, the maker of League of Legends, then the mobile giant Supercell in 2016.

10 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 ALL PATHS TO SUCCESS LEAD THROUGH TENCENT No other game company in the world has the power that Tencent exercises over its home market. Take eSports for example: the company owns both League of Legends, the top PC game, and Arena of Valor, the top mobile game. It has been so successful with Arena of Valor that it’s adapting the game into novels and a TV series.

Newer game genres are no exception. In battle royale games, Tencent is attempting to corner the market as the sole Chi- nese licensor of both Playerunknown’s Battlegrounds, which represents the more realistic end of the market, and Fortnite, which is more casual. Only Netease, another major compa- ny, has been able to mount a credible offense with its game Rules of Survival.

Where the West has the hyper casual trend, Tencent has its WeChat Mini Program, which publishes small, arcade-style games on the social platform. Even indie games are increas- ingly under Tencent’s thumb, through initiatives like the ACE program, which sponsors local indies. Spotlighter Interactive, the most successful indie developer to come out of China this year, is just one of the indies that Tencent is helping to catapult to the world stage.

Tencent’s domination of every market vertical in gaming is the reason that the company is the number one partner of choice for both domestic and foreign game developers — even as many complain that Tencent’s contract terms can be harsh.

11 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 Tencent’s League of Legends PROVING MOBILE MOBAS CAN WIN League of Legends is perhaps the world’s leading multiplay- er PC game, so it has made sense for dozens of mobile companies to try to copy its success. But all have failed. All, that is, except Tencent, which had made $3.5 billion by September 2018 with Arena of Valor. By comparison, ma- jor competitor Mobile Legends has only made $200 million, despite leading in Europe and North America. Vainglory, a much-hyped mobile MOBA, has made just $50 million.

Arena of Valor doesn’t get much notice in the West, be- cause its success is mostly confined to China. In fact, the game was designed to appeal mostly to Chinese players: the original game had a roster of over 60 heroes inspired by figures from Chinese mythology and history. “Its charac- ters are named after famous ancient Chinese figures, rath- er than translations of foreign names. People will feel more familiar with the game and it is easy for them to talk about it together,”posits iResearch analyst Chen Xiaohuan in the South China Morning Post.

Another major factor in Arena of Valor’s success is social media. Log onto Tencent-owned WeChat or QQ, and you can see which of your friends are currently in the game, with the option to invite them to another game, or talk strategy. Hop onto Tencent’s streaming service Huya, and you’re met with a scrolling promotion for King Pro League, Arena of Val- or’s official eSports league.

FEBRUARY 2019 12 CHARTBOOST POWER-UP REPORT Tencent’s League of Legends WeChat and QQ both have nearly a billion active users, mak- ing them the most widely used messaging apps in the country. Huya owns 44 percent of the domestic live-streaming market.

What can Western companies learn from Arena of Valor? One lesson is that social still matters for mobile — even if the go- ing is admittedly tougher for companies that don’t own social platforms. But while Arena of Valor caught attention through social, it held on thanks to its content. Rather than attempting to please all audiences, Tencent focused strongly on China. In today’s market, that may be what it takes to make a breakout hit.

Arena of Valor’s success in China also shows that MOBAs re- ally can succeed in mobile. And since Arena of Valor isn’t pop- ular in most markets outside of China, the field is still open for new competitors.

Tencent’s Arena of Valor

13 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 A VORACIOUS GIANT Being a giant has its challenges. Many wonder whether Ten- cent will be able to continue growing. Within China, the com- pany has been challenged by the freeze on mobile game approvals. And internationally, it lacks the market advantag- es that made it a near-monopoly in China.

Within China, the freeze has meant publishers — of which Tencent is one — focus more on the safe bets. That means famous Western IPs: Game of Thrones and Call of Duty are set to hit the Chinese app stores soon, for instance. Getting noticed with a less famous IP is still possible, but not as easy as in previous years.

Internationally, Tencent remains aggressive, despite not al- ways succeeding as much as it would hope. Like other cash- rich Chinese companies, it often favors a shotgun approach: investing in many different ventures. Just in 2018, its major moves included helping Ubisoft fend off a hostile acquisi- tion from Vivendi, purchasing Path of Exile developer Grind- ing Gear Games, picking up an Asia-wide license for Magic: The Gathering, and starting work on a Minecraft competitor. Western developers, whether or not they intend to enter Chi- na, should keep an eye on what Tencent does next.

Tencent’s Arena of Valor

14 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 5 ENTERING CHINA’S MOBILE ESPORTS ARENA ast December, the Shenzen Bay Sports behind King Pro, is mobile-only — yet draws make up half of the global eSports base. But the major benefit mobile holds over PC Center hosted one of the biggest crowds just as large as its older cousin in the gaming is that cyber cafes are, of course, events in mobile eSports: the King Pro MOBA genre, League of Legends. Elsewhere, Fans are only half the story. Arena of Valor not necessary. Budget gaming phones are L League finals. Over 11,000 fans flocked even mobile giants like Supercell struggle alone has 10,000 teams across the country. putting eSports in the hands, and homes, of to the arena, bright LED sign boards for recognition from the eSports communi- ever more users. Earlier this year, Huawei re- turning both stage and arena into a roiling sea of ty. “They are trying to promote their eSports Even the “casual” leased the Honor Play, lights. thing, but it’s never getting as big as in China,” scene is ultra-com- WITH 134.5 MILLION ESPORTS FANS, which was designed to says Tianyi Gu, a market analyst for Newzoo. petitive. “Here, eS- CHINA IS SET TO BECOME THE BIGGEST handle heavy graphics SCENE IN THE WORLD. But the live crowd was a blip compared to the 19 ports happens at requirements. Xiaomi million people who watched the spectacle on their Fueled by both PC and mobile, China’s eS- [both] a professional and wasn’t far behind with phones, laptops, and TVs. ports scene is set to become the biggest in amateur level. There are a lot of cyber cafes the Black Shark, a gaming phone that comes the world. Newzoo counts 134.5 million eS- that are very popular for amateur eSports with its own analog stick. The amazing turnout for a mobile game is what ports fans in China, of whom 67 million watch events,” says Gu. sets China apart from eSports markets like South professional eSports matches more than Korea or North America. Arena of Valor, the game once a month. By 2020, Chinese fans will

15 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 CASUAL GAMES GET TEAMS TOO Giant Interactive’s Battle of Balls is, by definition, a casual game. The only goal is to grow bigger by eating other players. The game bears strong similarities to Miniclip’s hit casual web game, Agar.io.

Yet unlike Agar.io, Battle of Balls is a full-fledged eSport. The game has over 300 million players globally, and around 13,000 people watched its first tournament live in 2016. It held its second Battle of Balls Pro League tournament this year.

China’s broad eSports demographic also helps brands to find a home. In other coun- tries, traditionally gamer-associated brands like Intel and PepsiCo also tend to be the most visible brands in eSports. But in China, only one stereotype about eSports fans is true: they’re young. “Over 75% of the esports audience in China age 35 or below,” says Gu. Agar.io’s Battle of Balls

Otherwise, Chinese eSports fans are a heterogeneous mix. Nearly a quarter of them are women, attracting sponsorships investments on female-only teams and tourna- ments. The diversity allows non-endemic brands to enter more easily than in the West.

“Right now, advertisers are happy to sponsor eSports, because it’s an easy way to connect with the young. For example, if Mercedes wants to promote a specific mod- el to a younger audience, then eSports is how they’ll do it,” says Cecilia Yau, Media Leader at PwC China and Hong Kong. Among the brands that sponsor eSports tour- naments and players in China are the country’s oldest beer maker, Harbin, Nike, and beauty brand Sephora. And with the profusion of teams, there is no shortage of spon- sorship opportunities to be found.

Agar.io’s Battle of Balls

16 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 6 HOW CHINA’S CENSORS AFFECT NEW GAME RELEASES etting a game approved in China is like navigating an obstacle course — one that sometimes rearranges itself with you inside. The entire process can take nearly a year, and as seen with the approval freeze G starting in early 2018, can sometimes grind to a halt entirely. Approval is just part of the puzzle, as well. “It is a long process, not just because of the government approval time, but also localization and culturalization,” says Daniel Ahmad of Niko Partners. For a game to truly shine in China, it must feel like it fits in the market.

Delaying has its consequences, too: very popular games may be copied well be- fore the original developer reaches the market, siphoning away their potential.

So what is a developer to do? Start with building an awareness of what matters in China, both to get approved and to attract players. It’s a lot of work. “But bear in mind this is the largest games market in the world,” says Ahmad. Early planning can pay off in a big way later.

17 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 THE REASONS BEHIND REGULATION To outside observers, China’s regulations on games often level of influence. Out of this bureaucracy has come an ex- look vaguely sinister. The fact that only Chinese companies haustive set of rules. can enter the process may lead to the belief that China is try- ing to block foreign companies. Alternately, an outside view- Yet not all game developers should be equally concerned er might decide that China hates the entire game industry, about the oversight. The key is in the phrase “healthy gam- based on moves like the approval freeze. ing environment”. Many regulations are part of an attempt to curtail the growing number of mahjong and poker games, As is often the case in China, the truth is more nuanced. Chi- says Niko Partners, and are unlikely to have a significant ef- na’s hyper vigilance does affect locals. Even Tencent, the fect on licensing for games in other genres like RPGs or ca- largest game company in the country, has felt the bite of reg- sual mobile games. Reforms in process are likely to have a ulations, blaming the freeze for its first profit dip in nearly 13 positive impact, in fact, cutting the time to approval process years. Yet games aren’t unique: China by a third. regulates every creative industry, in- “THEY WANT TO REGULATE IT IN cluding advertising and television. SUCH A WAY THAT LEADS TO A Finally, some developers must be HEALTHY GAMING ENVIRONMENT.” aware of one additional consideration, The true root of China’s regulatory at- beyond culture and protecting citi- mosphere lies in two things: culture, and protecting citizens zens: politics. China’s censors can, and do, regulate games from adverse effects, such as school children ignoring their to ensure that they match up with China’s modern political studies in favor of games or senior citizens gambling away messaging. For instance, “the country boundaries of China their savings. “They’ve always wanted to promote Chinese are not as the government would like, so in-game real world culture first,” says Ahmad, “They want gaming to grow, but maps must be changed. For example including Tibet as a they want to regulate it in such a way that it leads to a healthy separate country would be problematic,” says Josh Burns, gaming environment for citizens in China.” founder of consulting agency DigitalDevConnect.

This dual focus makes more sense in light of the govern- ment’s structure for reviewing games: more than one agency is involved. Currently, the newly formed State Administration of Press & Publication (SAPP) heads approvals, although the Ministry of Culture and Ministry of Education also have some

18 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 HOW TO KEEP THE CENSORS HAPPY Applying for a license is one of the last steps to getting published, not the first. A good publisher will proactively ask for changes or, even better, make minor changes like flipping that “XP” icon into hanzi characters on their own. Working closely during this period is important to avoid conflict about content. “Stay in contact with your Chinese publisher and speak to them through the whole pro- cess, because you may find they want to make a change that would change the game from what it started as,” advises Ahmad.

Getting everything perfect is imperative if you want your game to launch on time. “Some game publishers and developers will make guesses. They’ll pick up on something and say you know what, we probably shouldn’t do this, even though they haven’t been told spe- cifically about it,” says Ahmad.

As for gamers themselves, the good news is that they are, by and large, much less picky than their government. “Most won’t be inter- ested in censorship. Where all that comes from is government led, and it comes from the media, and concerned citizens like parents,” says Ahmad. As a result, developers interested in China can make understanding government approval their main focus.

19 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 7 CHINA’S AD-SUPPORTED GAME MARKET n-game ads aren’t a big business in China — yet. Major social and retail platforms owned by Baidu, Tencent, and Alibaba support a $50 billion mobile ad business. However, small app developers have I largely kept away from ads due to rules on the many competing An- droid stores that limit advertising. Adding to the difficulties, the Chi- nese government has more rules for advertisers than Western countries. As a result, almost all developers focus solely on in-app purchases.

But over the last year, ads have quietly been growing, and may now be poised to take off. In this section, we’ll cover 3 trends that may cause more developers to turn to in-game ads in China.

20 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 HYPER CASUAL ALSO EXISTS IN CHINA Western developers who focus on tiny, ad-supported games have entered China. On iOS, some familiar faces can be found: Voodoo is competitive with games like Hole.io and

Paper.io 2, while Lion Studios has Happy Glass and Big Big Lion Studios’ Happy Glass Baller.

Among Chinese developers, there’s a similar trend toward small games. WeChat, the social platform owned by Ten- cent, has won over hundreds of millions of players for its Mini Games program. Some of these games earn money through rewarded video ads, creating a generation of developers in China who favor ad-based monetization.

Lion Studios’ Big Big Baller

21 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 DEVELOPERS ARE SEEKING NEW BUSINESS MODELS Beyond the 2018 freeze on new game approvals, the long- term trends show slowing growth for in-app purchases. Growth is no longer as wild as it once was, and competition is stiff for the existing pool of monetizing users.

That doesn’t mean Chinese publishers will leap into ads. The prevailing opinion has long held that ads aren’t worth- while. “It has been a long time since it was proven that the LTV of a paying user is far higher than advertisement on a free mobile game,” says Mantin Lu, vice president of prod- uct at Seasun. “It’s painful for the industry to go backwards to what was neglected.”

But the same opinion was widely held in the West — until, suddenly, it wasn’t. Today, major Western developers like King are once again using ads, while newer player like Voo- doo raised $200 million for the business model. The proof that ads are working for Western developers, backed up by the success of WeChat Mini Games, present a convincing argument for Chinese developers that ads can compete.

22 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 WeChat Mini Games FEWER STORES MEANS EASIER AD IMPLEMENTATION Back when China had dozens of app stores in ers, it’s rarer to do traffic with a network direct- active contention, the outlook for ads was grim. ly,” says Eileen Keng, an account manager for Developers didn’t want to navigate rules for Chartboost China. “Technically it’s not easy to publishing ads on multiple app stores. And the integrate directly with them.” stores themselves were incentivized to prevent ads — lest their customers find their way onto a But the early days may not last for long. “I competing platform. wouldn’t say they have good technology compared to outside of China, but they move Sleepy Z Studios’s Ski Safari 2 Today, the store wars are mostly over, and the super fast, and they maximize use of their data few store owners still standing all have ad plat- and every other resource they have,” says forms. Tencent, Qihoo and Baidu, for instance, Lydia Chen, general manager of the Chartboost are all capable of serving ads. China. And the market needs new sources of demand: by 2021, eMarketer projects that 60 Once again, that doesn’t mean the way is clear percent of all ad spending in China will be ded- for ad-supported games to win in China. Chi- icated to mobile. Ad supported games aren’t a nese ad networks are technically behind their reality in China yet — but before long, they may Western counterparts. Most advertisers, for be the new hot trend. instance, are forced to rely on demand-side platforms or trading desks. “For China advertis-

Sleepy Z Studios’s Ski Safari 2

23 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 8 HOW TO SUCCESSFULLY ADVERTISE IN CHINA

hen China lifted a long-held ban on ads in 1978, it became one of the most unique countries in the world for advertising. For nearly twenty years afterward, going into the 1990s, the typical ad often W looked like propaganda, featuring images of proud workers and gleaming factories.

But today, for the most part, Chinese ads have become similar to Western ads. Cars, perfumes and phones are sold in glitzy, aspirational commercials. Many Western brands, such as McDonald’s, are active in the market.

Yet echoes of China’s past remain, and Western brands are sometimes sur- prised to find that their ads don’t get the expected response. Here’s our view on advertising in China, including tips from Chartboost graphic designer Rick ter Beeke and Neat Interactive, an Asian advertising firm based in Bangkok.

24 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 Going Alone is Difficult The Sell that Works

Entering the Chinese market, with its hun- When it comes to Chinese users, surprises dreds of millions of potential customers and can again be found. One of the biggest is high-energy attitude, feels exciting. But that that, while Chinese people love their mobile doesn’t mean success is easy. “A lot of the phones, they aren’t necessarily receptive to time it’s necessary to determine what the mobile ads. Salmeron points to a Tencent client’s objectives are — and temper ex- study that claims 80 percent of users will pectations,” says Edgar Salmeron, creative pay to avoid ads. director at Neat Interactive. Brands that do well often start with a softer A Western company that knows little of sell, through social media. As in the West, China, for instance, may assume that adver- companies should set up a social media tising will be cheap, as it is in many emerg- presence on multiple sites. Unlike the West, ing markets. Often, it’s the opposite. “A lot both setup and maintenance of this pres- of platforms will charge on CPM for different ence can cost money. Multiple social sites, sections of their website, but if you look at for instance, charge both an initial setup a rate sheet they send to you, it’s multiple fee and a monthly recurring charge for a tabs in Excel, multiple sizes of different business pages. Jing Daily estimates social places on their website and they all come campaign costs for a small brand at over with different prices. We’re talking $30k to $15,000, while a large brand may have to $60k per day,” says Salmeron. spend several hundred thousand dollars. A handy calculator can be found here. Like games, advertising is also regulated in China. Initial approval often requires a Chi- Beyond setting up a presence, influencers nese corporation and local office. Individual are vital to spreading the message. The ads are subject to review, as well. Small basics are the same as the West: people or details can catch the eye of a censor: for pages with large followings are paid to post instance, saying a product is the “best” is about a brand or use a product. The only prohibited. Major platforms like Sina Weibo catch is measuring the results — a partic- or WeChat won’t hesitate to ban a non-com- ular weak point, for some platforms — and pliant advertiser. ensuring that the influencer’s audience is legitimate, and that content is really shared. In sum, it’s best for a Western advertiser “You just have to do homework to make BEYOND SETTING UP A PRESENCE, who is new to China to find a local partner sure it’s all real,” advises Salmeron. INFLUENCERS ARE VITAL TO SPREAD- or agency. ING THE MESSAGE.

25 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 DEVELOPING AN AD COLORS THAT MATTER As described in this Report, Chinese consumers have different behaviors and preferences than their Western counterparts. Both modern and ancient Blue — Element: Wood Red — Element: Fire cultures inform ads. For instance, color has traditionally played a much Symbolizes: Spring, immortal- Symbolizes: Summer, vitality, larger symbolic role in China than it does in the West. Here, we’ll consider ity, healing, and trust. and good fortune. themes, colors and formats that matter for mobile ads, as related by Chart- boost graphic artist Rick ter Beeke.

As for formats, video is dominant, with interactive and static ads far behind. White — Element: Metal Yellow — Element: Earth When it comes to length, the most used is 30 seconds, but 15 and 20 sec- Symbolizes: Purity, but also Symbolizes: Royalty, glory ond placements are also seen. represents death and is the and wisdom. color of funeral clothes.

Black — Element: Water Symbolizes: formality and Green — Symbolizes: wealth and serious themes, but also nature, but also negatively asso- THEMES THAT MATTER associated with crime. ciated with anger and infidelity.

Purple–Symbolizes: divinity Gold– Symbolizes wealth. It is and immortality. Younger con- a popular color in marketing sumers are highly attracted materials -though too much Traditional Symbols, Historical Heroes, Family and Adventure and to Purple when it is used in of it could make things a bit Rituals and Myths Anti-imperialist History Romance Cosmopolitanism brands and for marketing. cheap-looking.

26 CHARTBOOST POWER-UP REPORT FEBRUARY 2019 9 CHARTBOOST IN CHINA

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28 CHARTBOOST POWER-UP REPORT FEBRUARY 2019